Financial inclusiveness in the digital age
BIZLINKS - Rey Gamboa (The Philippine Star) - November 20, 2018 - 12:00am

As the digital revolution continues its march, traditional banks are facing challenges from uncharted sectors. If you’re familiar with PayPal, or even local remittance facilities like Palawan Express Pera Padala, you’ll realize why many Filipinos are less keen on having a bank account.

According to the Bangko Sentral ng Pilipinas’ Financial Inclusion Survey made public last July, only 22.6 percent of Filipinos in 2017 transacted with a traditional bank, and about 52.8 million Filipinos continue to be unbanked. This high number bears correlation to economic growth, as more people going through the formal banking system signifies a healthier GDP.

While the survey showed a growth in the number of formal bank account holders compared to two years ago, this had been modest. On the other hand, the number of Filipinos who held accounts with microfinance organizations grew significantly. The FIS in conducted every two years.

The biggest money-handling channel that threatens traditional banks, though, are electronic money issuers or EMIs. From just two companies offering electronic money transfers in 2004, this has grown to 40 as of end 2017. There are more applicants waiting for their licenses.

E-money transactions have been rising at double-digit levels, with Filipinos realizing the convenience that e-wallets and e-money transfer offer through their mobile phones. As of end-September, electronic money transactions rose 11.2 percent to 268 million from year-ago levels.

Turned off

Unless traditional banks introduce counter-measures that will attract people to their services, e-money technology start-ups with their unique offerings could become significant players in the financial system as they corner more financial transactions.

Traditional banks are steeped in conservatism, which is good, but which also has its drawbacks. In the Philippines, in particular, Filipinos are turned off from getting a bank account because of the hurdles in producing documentary requirements and the need to keep a maintaining balance.

While 60 percent have said they do not have the money to keep a bank account, 21 percent simply say they do not see a need to have any dealings with banks.


Many financial executives says that to be able to grow in an increasingly digital financial world, they must be attuned to what customers want – not just to keep them loyal, but also to attract new ones.

Recent surveys show that customers want to be rewarded by their banks for staying with them. This conjures rewards programs where there is earning from credit card use, discounts, as well as incentives when opening an account.

Customers want convenience where they can access their accounts 24/7 at any place. They also demand some sort of personalized banking experience where artificial intelligence is able to help banks determine customers’ banking preferences.

Increasingly, customers also expect banks to provide advice on what to do with their money, including a menu of wealth-building recommendations – all these, including the assurance of security in all banking transactions.

More small banks close

Consumer demands have enabled many agile, often big, banks to get ahead, either by fortifying their own in-house capability in terms of strengthening their digital offerings by employing one or a variety of financial technologies available by start-ups, or both.

But many others – small and medium-sized banks, thrift, rural and cooperative banks – are being left behind because they do not have enough resources, both financial and manpower, to initiate a digital transformation.

Currently, 90 percent of small banking institutions do not have an electronic banking platform, something that their customers increasingly demand – and often are able to find in EMIs like pawnshops, and bayad (payment) centers.

No wonder more small banking institutions are fighting for survival, largely because of a diminishing customer patronage and interest. Recently, the BSP shuttered another rural bank, the 12th this year that failed to comply with the central bank’s stringent operational standards.

Last year, the BSP closed down seven banks. This year’s bigger toll reflects the regulator’s continued crackdown on weak banks that are unable to protect their depositors and align to global banking practices. More small banks are likely to be culled.

Inclusive growth

The BSP wants to see 20 percent of monetary transactions in the country going through the National Retail Payment System (NRPS) by 2020, and it seems that there is more scope for this to happen through non-bank channels like EMIs.

It believes that having more Filipinos who make it a habit to rely on an electronic retail payment system, as envisioned by the NRPS, would facilitate the Philippines’ transition from a cash-heavy to a cash-lite economy where users benefit from efficient transactions, reduced costs, improved transparency, enhanced security, and expanded access to financial services.

A study by the Asian Development Bank showed that a digitally-driven inclusion strategy could boost Philippine gross domestic product by two to three percent. The World Bank also urged more Filipinos to go electronic when paying for utility bills, domestic remittances, and retail transactions.

With Filipinos’ strong penchant for smartphone use and internet connectivity, the BSP believes that this will close the gap in financial inclusiveness faster, and raise financial literacy levels even in the countryside sooner.

The BSP sees scope for a more significant push in the digital space since 38 percent of Filipinos own a smart phone, and with 86 percent of them able to go online via mobile data connections. This is happening not just among the young, but even with farmers and fishermen in the countryside where the economic growth stimulus is most needed.

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